Facts of the Case

The Revenue filed appeals under Section 260A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal (ITAT) concerning determination of Arm’s Length Price (ALP) under Section 92CA.

The dispute primarily revolved around:

  • Inclusion/exclusion of comparables such as Brescon Corporate Advisors Ltd. and Keynote Corporate Services Ltd.
  • The assessee had initially objected to inclusion of Brescon on the ground of high profits, not on functional dissimilarity.

The ITAT, however, excluded certain comparables relying on prior decisions and functional analysis.

Issues Involved

  1. Whether ITAT was justified in excluding Brescon Corporate Advisors Ltd. as a comparable without detailed functional analysis at lower stages.
  2. Whether exclusion of Keynote Corporate Services Ltd. based on abnormal profits and extraordinary events was valid.
  3. Whether prior tribunal decisions can be relied upon for determining comparability across different assessment years.
  4. Whether any substantial question of law arose under Section 260A.

Petitioner’s (Revenue) Arguments

  • The assessee did not object before the TPO or DRP on grounds of functional dissimilarity, hence ITAT should not have excluded the comparable.
  • ITAT wrongly relied on earlier rulings like Xander Advisors India (P.) Ltd. without independent analysis.
  • Mere reference to functional dissimilarity in another case cannot automatically apply.
  • Relied on Chryscapital Investment Advisors (India) Pvt. Ltd. v. DCIT (2015) 376 ITR 183 (Del) to argue that high profit alone is not a ground for exclusion.

Respondent’s (Assessee) Arguments

  • Functional profile and absence of segmental data justified exclusion of Brescon.
  • Prior tribunal decisions had already examined comparability in detail.
  • Extraordinary events (like amalgamation) impacted profitability of comparables like Keynote.
  • Consistency in FAR (Functions, Assets, Risks) analysis allows reliance on earlier rulings.

Court’s Findings / Order

  • The Court held that:
    • Although the assessee did not initially object on functional grounds, prior tribunal findings for the same assessment year (2006–07) had already analyzed Brescon’s functional profile.
    • Lack of segmental data and diversified income streams justified exclusion of Brescon.
    • Exclusion of a comparable cannot be treated as erroneous merely because the objection was not originally raised.
    • Regarding Keynote Corporate Services Ltd., abnormal profits due to extraordinary events (amalgamation) justified exclusion.
    • ITAT’s reasoning based on FAR analysis and peculiar facts was valid.

 Final Decision:
The Delhi High Court held that no substantial question of law arose and dismissed all Revenue appeals.

Important Clarifications

  • High profit alone is not sufficient for exclusion of a comparable; functional analysis is essential.
  • However, absence of segmental data and functional differences can justify exclusion.
  • Prior rulings can be relied upon if FAR profile remains consistent.
  • Extraordinary events like amalgamation affecting profitability are valid grounds for exclusion.
  • No estoppel applies—incorrect inclusion in earlier years does not prevent correction in subsequent years.

Sections Involved

  • Section 92CA – Transfer Pricing (ALP Determination)
  • Section 260A – Appeal to High Court
  • Section 154 – Rectification of mistakes

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:2452-DB/SRB16042018ITA6342017.pdf

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